How to Get Out of Credit Card Debt, and Pay Off 113 Goats – Part I

Are you having a hard time paying down your credit card debt? Does your balance stay the same, or even grow from year to year? In this series we will explain how to get out of credit card debt in the shortest amount of time.

You lost the Farm (True story Bro)

So you went and racked up some credit card debt didn’t you? Don’t feel too bad, you’re certainly not alone. According to NerdWallet.com the average credit card debt in America is nearly $17,000.

That means the average American family has 113 goats worth of debt accumulated on their credit cards.

Just imagine them in your backyard.

What did we really buy?

Actually, most people pay for clothes, TV’s, phones, and vacations with their credit cards. Of course, when you think about it… those things are worth practically nothing a year after you buy them. At least 113 goats would be worth something now; maybe even more than you paid… Now there’s a thought.

Perhaps those goats don’t sound so silly after comparing them to what you bought? Maybe it’s just that anything we put on a credit card we can’t pay off the next month is ridiculous? When randomly buying over 100 goats might have been a better idea than whatever we actually did,,, well,,, that should probably be a wake up call.

Why it Matters to You.

Look, it’s in the past and it doesn’t matter whether you spent the money on hats, goats, or medical bills… it’s spent… it’s gone. The only course of action now is to start crunching some numbers and claw our way out of this.

First, we need to understand the situation and why it really is a big deal. We must consider that the average credit card interest rate is over 15%, meaning Americans are paying about $1,500 (9 additional goats) a year in credit card interest for every $10,000 in debt. In other words, if you maintain $10,000 in credit card debt, then the first $125 a month you make in payments goes to interest.

Does a Balance Transfer to a 0% Card Make Sense?

Step 1: See if getting a 0% credit card with a Balance Transfer option makes sense for you. (Requires good to excellent credit; here’s a good place to start your search.)

If you have good credit you may be able to secure a new credit card with 0% interest on balance transfers for 12 or more months. Getting a card at 0% for a set amount of months allows you to load your highest interest card(s) onto the new 0% card. If you secure this sort of card we recommend paying it off before the rest of your remaining cards.

Why? Because credit card companies are sneaky bastards, and who knows what was in the fine print you were supposed to have read? But most likely all sorts of bad things will happen if you don’t have the card paid off before the 0% APR expires, or heaven forbid you make a late payment. These repercussions include but are not limited to, charging you interest retroactively, raising your regular interest rate dramatically, or basically just giving you their proverbial mugging.

Your Credit Card Company if you miss a payment.

To avoid this potential hardship, only put onto your new 0% card what you can payoff before the 0% offer expires. For example, if you get a card with 0% APR for 15 months, only put onto the card what you can pay off completely in 14 months; this will give you a little buffer room just in case.

Before applying for a 0% card:

Figure out if it’s worth it: If you carry an average debt of $1,000 on a 20.00% APR card, you are paying over $200 a year in interest. But when you start paying a credit card down, the amount you pay in interest changes. So if you plan to pay that credit card off steadily over a year, you will actually only pay a little over $100 in interest because you will only owe $500 on the card 6 months into the process, and less and less with every passing month. Make sense?

So then, would you really save that $100 switching to a 0% card for 12 months? Maybe, you will also need to make sure there aren’t any balance transfer fees. Sometimes there is no fee on balance transfers for so many days after getting the card, other times there is a fee between 1% and 5%. Let’s pretend it’s 3% in this example, which means you would pay $30 to do the $1,000 transfer.

For most people it starts becoming worth the effort to switch to a 0% card once the balance is over $1,000.

How this plays out with a $1,000 card you are trying to pay off in 1 year @ 20% APR and a 3% balance transfer fee.

Approximately $110 is saved in interest in this example.

Approximately $30 is spent on the balance transfer.

$110-$30 means you save about $80. (kind of up to you.. this is probably the border of how much my effort is worth and whether I mind a small ding to my credit for opening a new account. I likely wouldn’t bother with this on a card with a balance of $1,000 or less.)

What if instead of $1,000 on the card we have $10,000.

Approximately $1100 is saved in interest in our example.

Approximately $300 is spent on the transfer.

You save about $800. (Now that’s a lot of savings)

Does a Personal Loan make Sense?

Step 2: See if a Personal Loan makes sense. You will likely need a credit score over 620 to get a lower rate than your current credit card… so there’s that. If you weren’t able to secure a 0% credit card, or you still have a considerable amount you can’t fit on the 0% (and get it paid off before the 0% expires) then it’s worth a try to see if you can get a personal loan at a lower interest rate on the remainder.

This strategy has the same basic rules as step 1. How much will your current credit card cost while you are paying it off, versus how much the personal loan will cost. Is the difference worth the effort? The key here is that a lower interest rate will allow more money to go toward the principle each month, therefore paying it off faster. Here is another great calculator from SoFi that will tell you how much you might save by getting a Personal Loan to pay off your credit card. Here we can see that with excellent credit we could save $2,500 over a 3 year period on a $10,000 debt!

If you think a Personal Loan might make sense for you, use our SoFi affiliate link and you’ll be eligible for a welcome bonus.

Excellent work, now go to Part II where we show you how exactly to best pay down your remaining cards.

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